EU moves to protect firms from unfair foreign competition

The European Union has moved to stop state-backed foreign firms from buying or undercutting EU companies, with new proposals aimed to protect homegrown businesses from takeovers or unfair competition.

The plans announced by the European Commission on Wednesday were in line with the stated objectives of Ireland's commissioner Phil Hogan, who vowed to combat distortion in the single market caused by foreign subsidies ahead of his appointment.

"The single market is the key to European prosperity. But it only works if there is a level playing field. And for the commission, it is a priority to protect that level playing field against the harm that foreign subsidies can do," commission executive vice-president Margrethe Vestager said as she launched a White Paper and a public consultation on the issue.

China has long been accused of backing aggressive takeovers of crucial technology and key strategic infrastructure, but the plans are also highly sensitive for Britain as they indicate that Brussels will be alert to any UK attempts to undercut EU rivals after its Brexit transition period ends this year.

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Bidding swayed

The EU executive said there had been a “growing number of instances” in which companies had lost out to competition from rivals propped up by foreign subsidies, that allowed them to buy EU firms, influenced investment decisions, or swayed bidding in public procurement.

“There is a lot of money coming into the union,” Ms Vestager told journalists.

“There have been a number of suggestions of different cases where people say: this is not possible, you cannot have a bid that is this cheap, or you cannot compete with these kinds of prices, if you do not have someone to subsidise your operating costs,” she added.

“I think a lot of people have had a sense of something ongoing, but since we have had no mechanism, we have had no tool, then we have had no way to address it.”

Buying spree

Existing foreign direct investment screening rules and trade defence measures were not enough to ward off a potential post-coronavirus buying spree of cheap assets, the European Commission said.

Under the plans, foreign firms seeking to buy a stake of over 35 per cent in an EU company with a turnover of more than €100 million would have to inform the commission if they have received more than €10 million in state aid.

If they fail to do so, they could be fined or the deal could be vetoed. Buyers could have to sell assets to make up for any unfair advantage gained.

Companies already present in the bloc would have to report any foreign subsidies that exceed €200,000 over three years to the commission, and might have to sell assets, reduce market share or capacity, or make payments to rebalance any distortions.

The proposals are open for consultation until September 23rd, after which the commission will draw up legislation.